“Do you expect the conditions in the following areas to be better or worse in 2025 than they are today?”
| Better | Worse | Same | No Opinion | |
| Race relations | 66% | 26% | 6% | 2% |
| Moral values in society | 31% | 62% | 5% | 2% |
| Availability of good medical care | 66% | 29% | 3% | 2% |
| Threat of terrorism | 23% | 70% | 4% | 3% |
| The crime rate | 35% | 57% | 6% | 2% |
| The quality of the environment | 40% | 54% | 4% | 2% |
by Martin Taylor
KUALA LUMPUR, Malaysia
In the face of financial turmoil in world markets, can ethics make a difference?
Yes, said stock exchange executives from more than 40 countries, convening here for the annual meeting of Federation Internationale des Bourses de Valeurs (FIBV, or International Federation of Stock Exchanges).
Mixing the top management from familiar stock exchanges and emerging markets with a small group of ethics experts from around the world, the meeting sought to prescribe new solutions for global market health. Once maintained by rules and regulations, stock markets are increasingly challenged by advancing technology. Given the current circumstances, these participants wanted practical answers.
Glancing at the local papers showed why. The front section of the October 26 New Straits Times, one of Malaysia’s English-language newspapers, carried 12 articles related to the economy and 12 articles about the violence associated with the sacking of Finance Minister Datuk Seri Anwar Ibrahim. People are out of work, projects are halted, sales are down, and confidence is ebbing away–plenty of reason, then, for stock exchange executives to consider how best to address a global financial collapse that started in Thailand more than a year ago and now has the entire world in its grip.
In this atmosphere, the very fact that the FIBV solicited ethical input from around the world–including Professor Lynn Sharp Paine from Harvard Business School, Professor Hans Kung from the University of Tubingen, and my representation from the Institute for Global Ethics–was itself encouraging. FIBV’s long-term identification in its mission of such core moral values as fairness and honesty (transparency) provided a foundation for our discussion. The demise of the Asian market bubble and the subsequent exposure in recent weeks of several hedge funds’ enormous vulnerability through leverage raised another value to prominence: responsibility.
But can such values guide practical behaviors? One European market CEO seemed to think so as he explained his dilemma. “There was a growing bubble in our capital city stock market,” he said. “I knew that it was dangerously swollen, beyond common sense valuations. Should I have interfered in the operation of the free market to prevent further growth and a more devastating collapse?”
You can’t find a much more compelling moral dilemma than that.
These values also figured implicitly in the thinking of the president of a major U.S. exchange, who declared that every major financial crisis in the United States dating back to 1792 was precipitated by overinvesting accelerated by overborrowing. That description certainly fits the current situation, where enthusiasm for the growing strength of emerging Asian economies force-fed torrents of investment money into markets ill-equipped to handle them. There were too many deals for the regulators to watch. Because so many projects were funded by lines of credit, those deals escaped the scrutiny of bankers. Times were good, and no one felt compelled to stop the euphoria.
In hindsight, of course, it should have been impossible to mistake the signs of a bubble. With new buildings vacant and new factories operating at low capacity, the investments were not reaping any rewards. But where were the warning signs? Who could have blown the whistle but didn’t? One obvious answer: exchange executives.
But the executives gathered for the evening at the magnificent new Kuala Lumpur Stock Exchange, worried that the conventional controls have in some ways already been compromised by the technical expertise, shadowy operation, and irresponsible leverage of the hedge funds. No one really knew how much financial weight was in their hands. No one could judge the extent of overinvestment and so judge correctly the risks. Stock markets pride themselves on their roles as intermediaries, as risk managers. But if they can’t see the risks, they can’t manage them.
So if conventional controls have been outdated by advancing technology and practice, is it time to invoke ethics? More than a few conferees took that position. They noted that while the existing regulations are sufficient, they needed to be enforced equally and consistently. That’s fairness. They felt more effort was needed to convince market participants that information should be readily and generally available. That’s transparency. And they felt that something needed to be done to rein in those who wanted to take big risks with other people’s money. That’s responsibility.
It’s a line of discussion one might not expect at a meeting of this sort. Yet the conferees received the ethics discussions with enthusiasm, and conversations about values continued to spring up spontaneously throughout the evening.
Financial markets are not toys, and the participants are not children. Yet even with controls in place, the human cost for stock-market gambling is high. The executives gathered here seemed to agree that ethics programs may help level the playing field by reinforcing the values of honesty and fairness in their code of ethics. They felt that the value of responsibility may help to temper excessive risk taking. All in all, it was a good day for global ethics.
(c)1998 by the Institute for Global Ethics
Comments and questions? Email Martin Taylor, the Institute’s vice president for corporate services: marty@globalethics.org.
Rushworth Kidder is on assignment this week.
And it quacks like a duck, then it’s probably a duck.
Or maybe it’s a decoy.
Such are the difficulties in defining a duck–or an employee. Is someonewho in many other respects looks like an employee really an independentcontractor?
Drawing that distinction is an ethical and practical dilemma for manyorganizations, and a dispute over that definition tops this week’s edition ofBusiness Ethics Newsline, your weekly guide to the news in ethics.
We report on a suit brought by the U.S. Labor Department against Time Inc.,charging the media conglomerate with misclassifying employees as independentcontractors in order to deny them benefits.
In other news from the world of ethics, we highlight two reports dealing withinternational commerce: the resignation of a top Japanese CEO after a kickback scandal, and a possible roadblock to international electronic commerce posedby the European Union, which is seeking greater privacy protection thanafforded by the United States–and is threatening to stanch internationalcommerce that involves the movement of personal data.
We also report on three domestic legal cases:
We conclude this edition of Newsline with a link to an intriguing essay aboutthe ethics of campus bookstore buyback programs.
–Carl Hausman
Special to Newsline from London Correspondent E.B. Mills
British cabinet minister Ron Davies, the Welsh secretary, abruptly resignedfrom the Blair cabinet Tuesday after an incident on Clapham Common, near hishome.
Davies reported that he had been robbed at knifepoint by a man he met on theCommon, after going to the stranger’s flat to meet another unknown man and awoman. After reporting the incident to the police, Davies met with PrimeMinister Tony Blair and resigned, saying he had brought embarrassment to hisfamily and the government.
Davies, a married man, offered no explanation of why he would go off with astranger he met on Clapham Common, but the British press was quick to fill inthe blanks, suggesting that Davies was on the Common soliciting a homosexualtryst. That area of the Common is a well-known gay cruising area. There werealso suggestions of a drug connection, though none of the papers offered anyevidence to support either supposition.
Davies plans to keep his seat in parliament, but he also withdrew as theLabour Party’s candidate for leader of the Welsh Assembly, a positiontantamount to prime minister of Wales.
At week’s end, facts were few but speculation in the press abounded.
Special to Newsline from London Correspondent E.B. Mills
The image of Adolf Hitler is being evoked in an advertisement aimed atrecruiting black and Asian candidates to be British Army officers. The two-pagenewspaper ads, designed by the famous ad firm Saatchi & Saatchi, are part of acampaign to increase the numbers of black and Asian servicepeople, currently justover 1 percent.
The first page of the ad shows a white soldier–with an unmistakable Hitlermoustache–over a caption that reads, “In today’s Army blacks and Asians getcalled all sorts of things.”
The second page shows the same white soldier saluting, and the caption reads,”Lieutenant, Captain, Major, Colonel.” Below that, the ad copy says that intoday’s British Army, the only people who are held back are racists.
An ad agency spokeswoman said the Hitler allusion was added “for impact.”
Special to Newsline from London Correspondent E.B. Mills
More damaging testimony is being heard about the British government’s bunglingof the so-called “mad cow disease” outbreak of the late 1980s and early 1990s.
Sir Donald Acheson, who was the government’s most senior medical advisorbetween 1983 and 1991, told an inquiry he was pressured to say that Britishbeef was safe when in fact the Ministry of Agriculture, Fisheries, and Food(MAFF) knew the disease BSE (bovine spongiform encephalitis) posed a risk tobeef-eating humans.
Sir Donald accused the MAFF of withholding crucial information from him,including scientific research that showed BSE might pose human health risks.He also criticized MAFF for continuing to export infected cattle feed afterits use was banned in Britain.
ST. PAUL, Minnesota
Cigarette maker Philip Morris contemplated purchasingnewspaper chains and wire services–including Knight Ridder and United PressInternational–in order to “improve the climate for the marketing and use oftobacco products,” according to a document publicized last week at theNational Conference on Tobacco and Health, a meeting of antismoking groups.
The document, one of 33 million pages of private tobacco company documentsmade public during Minnesota’s prosecution of tobacco companies, outlined a”top secret” operation dubbed “Rainmaker,” suggesting that the purchase of amedia group would “prevent further deterioration of the overall social,legislative, and regulatory climate,” the Associated Press reported.
Other strategies included infiltration of antismoking groups and bankrollinggrassroots prosmoking campaigns.
A spokeswoman for Philip Morris questioned the authenticity of the documentand said it is a “mystery” to the company.
WASHINGTON, D.C.
Consumer privacy took center stage last week in discussionsbetween U.S. and European Union (EU) leaders after EU member nations werescheduled to start enforcing regulations barring the transfer of some personaldata over the Internet to the United States.
They charge that the United States fails to meet the privacy safeguards mandated by EUlaw.
Trade experts warned that a broad embargo on digital data could hinder theextension of electronic commerce and the globalization of all industries, theChristian Science Monitor reported.
EU leaders have suspended implementation of the Data Protection Directivetemporarily, hoping that negotiations with U.S. leaders will open the way tofree e-trade. But they insist that the current policy of allowing U.S.companies to voluntarily police themselves is insufficient protection forconsumers’ privacy.
WASHINGTON, D.C.
The Department of Labor sued Time Inc. last week, accusing themedia conglomerate of misclassifying hundreds of regular employees asindependent contractors or temporary workers in an effort to avoid providingthem with standard benefits, including health care and pension coverage.
Labor Secretary Alexis Herman requested a court-appointed audit of Time Inc.and Time Warner to locate workers who functioned as regular employees but “didnot receive benefits they were entitled to,” the Associated Press reported.
Time Warner president Richard D. Parsons denied any wrongdoing and called thelitigation “a classic example of bureaucratic overreaching and posturing.” Acompany press release also accuses the Labor Department of ignoring agovernment report that found the rules for distinguishing employees andindependent contractors to be unclear.
RICHMOND, Virginia
A Virginia jury awarded a nonprofit fair-housing group arecord $100 million for insurance discrimination, finding that NationwideInsurance refused to write homeowners’ policies for black homeowners andavoided selling policies in predominantly black neighborhoods.
U.S. Department of Housing and Urban Development (HUD) secretary Andrew Cuomohailed the Virginia verdict as “good news not just for minorities, but forinner-city neighborhoods that have suffered far too long from redlining andother forms of discrimination,” the Associated Press reported.
The case against Nationwide Insurance was filed by Virginia’s HousingOpportunities Made Equal (HOME), one of five fair-housing groups supplied withHUD funds in order to gauge insurance discrimination across the country.
Nationwide, which paid $4.5 million earlier this year to settle a similar casein Toledo, Ohio, insisted that the company does not “unfairly discriminate”and will appeal the verdict.
TOKYO
The chairman of Japan’s largest personal computer maker, NEC Corp.,resigned last week, apologizing for his inability to halt corrupt dealingsinvolving two NEC subsidiaries and the Japanese military.
Government investigators have charged eleven NEC workers and two Defense Agencyemployees with overcharging the military and then giving NEC jobs to retiringmilitary workers as rewards for covering up the charges.
NEC chairman Tadahiro Sekimoto said he was ignorant of the misdeeds, butresigned “to draw the line about ethical and social responsibilities,” theAssociated Press reported.
NEC’s president, not implicated by the scandal, said he would remain with thecompany in order to “regain public trust and conduct company reform.”
HARTFORD, Connecticut
A Connecticut health maintenance organization (HMO) can besued for negligence, a federal judge ruled last week, reinstating aConnecticut family’s lawsuit charging that their HMO contributed to theirson’s suicide by denying him continued psychiatric care.
U.S. district court judge Christopher Droney said that the standard HMOdefense in such cases–a 1974 federal law disallowing negligence claimsbased on denied insurance benefits–did not apply to the Connecticut case,the Associated Press reported.
The rights of patients to sue HMOs have become a politically charged issue, theAP reports, as consumers concerned about the quality of HMO care pushlawmakers to expand their rights to sue for negligence, while HMOs contendthat such a move would send health-care costs spiraling.
HARTFORD, Connecticut
A university student discusses the ethics of hisschool’s textbook buyback policy in a recent Christian Science Monitorarticle.
Contemplating the massive depreciation for even the most well-treated texts,Ethan Mitkowski questions his school store’s business practices: “I canunderstand the store’s policy. After all, our campus store is a private money-making venture–it is there to make a profit as an outside business before itis there to cater to students’ needs….
“But from a business designed to support a university, an institution [that]should place students at the top of its priorities, this adversarial supply-and-demand approach over the basic tools for learning seems unfair.”
by Martin Taylor
Interview with Norman A. Baglini, Ph.D., CPCU, CLU, former chairman and chief executive officer of the American Institute for CPCU, the Insurance Institute of America, and the Insurance Institute for Applied Ethics.
Norman A. Baglini, Ph.D., CPCU, CLU, is arguably the most outspoken proponent of ethics in the world of insurance. Former chairman and chief executive officer of the American Institute for CPCU, the Insurance Institute of America, and the Insurance for Applied Ethics for almost 25 years, Baglini made ethics a top-of-mind concern for insurance company executives across the country. As he prepared to retire from the institutes to pursue an interrupted academic career, the Institute asked for his thoughts on ethics, business, and the insurance industry.
Dr. Baglini, why are you so concerned about ethics in insurance?
Trust is a fundamental principle of insurance. The insurance agent who writes a policy, and the underwriter who approves it as business for his company, must trust that the information on the application is correct. The agent and the company providing the insurance must trust that the policyholder making a claim will accurately assess the loss. In turn, the applicant must trust that the agent is giving proper advice, untainted by a conflict of self-interest. The applicant must trust that the company underwriter will not discriminate when establishing the premium. Lastly, the policyholder must have faith that the company adjusters will pay a fair amount for a claim, should it become necessary.
Francis Fukuyama would say that trust, or operating together under a common set of ethical norms, enables societies to function economically. In the absence of trust, the transactional fees from legal and governmental bodies would make a business like insurance difficult at least, and perhaps impossible.
Without trust, insurance cannot perform its proper function as a risk management device for companies and individuals. No industry depends more on trust, and this trust comes from a series of events in which ethical values are demonstrated. For instance, a life insurance policy might provide coverage for decades, although it’s only a piece of paper. That piece of paper, however, commands a series of premium payments totaling thousands of dollars over many years. The same piece of paper, in return, promises a large payment sometime in the future.
Dr. Baglini, when you established the Insurance Institute of Applied Ethics in 1995, what was the first challenge you addressed?
We felt that our first task was to raise awareness of ethics in the insurance industry itself, among insurance consumers, and among the regulatory bodies. The second step was to get industry employers and employees committed to ethics. The third step was to help develop ethical competence. Recognizing that a 15-minute ethical lapse can ruin a career as it did for the CEO of Bath Iron Works, described by Rushworth Kidder in How Good People Make Tough Choices, is an important first step in awareness. Becoming prepared through training gives people tools to deal with the critical moment when their ethics would be tested.
What have you done to achieve these goals?
One accomplishment that’s worth notice is Ethics Awareness Month–which our industry observes annually as a whole, including property and casualty and life insurance–with trade press articles, speakers, and seminars. There’s tremendous diversity in what constitutes ethical awareness, primarily varied by job role. Company CEOs must recognize that they are responsible for establishing the values of their corporations. “CEO” should stand for “Chief Ethics Officer.” Agents, on the other hand, must perceive that ethics is normal business practice–not only what is legal, but what is fair and honest. To reach those ends we frequently convene panels of experienced people during Ethics Awareness Month to discuss common situations in which people are challenged ethically.
Do these panel discussions help?
Yes, the discussions certainly make the audience aware that ethics is above the minimum legal requirements. The panelists don’t always agree, which helps the audience to recognize that ethics is a study of conflicting right answers, where there often is no single correct answer. These discussions also heighten the need for commitment to principles, many of which are clearly stated in codes of ethics.
Currently, what’s the “moral barometer” of the insurance industry?
Well, I don’t know–mergers and acquisitions keep the landscape in a perpetual state of change. I read the trade press, and I’m often upset by what has been done. On the other hand, there are people out there who do the right thing at great personal sacrifice. But whomever we are, we can and should raise the ethics standard, just as many industries improved their customer service.
Trust is less general than it used to be in many sectors–banks, stockbrokers, government are all scrutinized carefully. When an unethical business practice becomes apparent–routinely denying claims, for instance–regulators come down hard, and many employees ask themselves, what about my company? But actually, it’s a few rogues who have caused an awful lot of trouble. When trust departs, the regulations and paperwork arrive.
What can the insurance industry do to improve?
The industry has to take the initiative in heightening trust, training all its people to act ethically–honestly, fairly, and with integrity. In time, there will be a similar response from our clients. Did you know that fraudulent insurance claims may be as high as 15 to 30 percent of the total? There are professional claimants who make a career out of having their cars rear-ended.People view insurance companies as disinterested institutions, not pools of their neighbors. There’s not much loyalty on either side. Clients may have a much closer tie with their agents, however. The Insurance Information Institute did a study among the general population recently that ranked the reputations of insurance agents higher than insurance companies. We need to make the whole relationship much more personal.
Every time my colleagues and I speak, whether at industry annual meetings, individual organizations, conferments, or board meetings, we strongly urge the audience to accept responsibility as ethical role models because they are, whether they want to be or not. CEO or underwriter, what they do is more important than what they say. The image of our industry will not be changed through public relations, but through one personal encounter at a time.
“The price of greatness is responsibility.”
–Winston Churchill (1874-1965)
